Leaders set for first-ever cut to EU budget

EU leaders looked ready on Friday to cut the bloc's budget for the first time in its six-decade history, with a tentative agreement to trim spending by three percent in absolute terms over the rest of the decade, diplomats said.

As marathon talks entered an 18th hour, a sustained push led by British Prime Minister David Cameron for the EU to share in the austerity cuts the 27 member states are implementing won crucial backing from German Chancellor Angela Merkel.

While France and Italy still fought for funds aimed at trimming record European unemployment, a lowered spending ceiling of 908.4 billion euros ($1.2 billion) was put to the leaders at 0530 GMT.

The new figures would mean a first-ever fall in the EU's seven-year budget in absolute terms against the previous term.

Hours of hard bargaining were still expected before leaders agreed on all the details, with one diplomat saying the numbers may still be tweaked.

An absolute ceiling of 960 billion euros was set for spending "commitments" between 2014 and 2020, down from the 973-billion target that Cameron and allies such as the Netherlands rejected at the previous budget summit in November that collapsed without any deal.

In the EU budgeting process commitments refer to the maximum amount that can be allocated to programmes during the budget period, while actual spending or "payments" is usually lower as projects are delayed or dropped.

Originally, the European Commission had wanted a 5.0 percent increase in EU commitments to 1.04 trillion euros ($1.4 trillion) -- about one percent of the EU's total gross domestic product.

The contours of the deal were thrashed out during multiple mini-meetings during the night, and included six billion euros for a new fund to tackle youth unemployment.

Jobless numbers across the EU are currently over 26 million, with nearly three out of five under the age of 25 out of work in Spain and Greece.

Even if EU leaders manage to overcome a growing divide between mostly northern states who are net contributors to the bloc's budget and bent on cutting spending and the southern nations that are seeking to protect the funds they receive, the budget still faces a hurdle in the European Parliament.

The budget needs a majority to back it in a free and secret vote by lawmakers, and the assembly's head Martin Schulz warned earlier that "backward looking" figures offered "the worst of all worlds".

As the haggling continued, big-ticket Commission plans to use 40 billion euros to leverage private investment in cross-border energy, transport and digital networks took a hit.

A quarter of that sum went by the wayside, with EU administrative expenditures cut as well.

Some of the roughly 35,000 EU civil servants have already begun strike action over fears they will lose their jobs and the perks.

Italy battled hard to mitigate cuts with Prime Minister Mario Monti fighting an election this month -- and yet another comeback bid by Silvio Berlusconi -- on a pledge to kickstart job creation and growth.

Cameron, who last month risked isolating himself with a decision to hold a referendum on Britain's membership of the EU, placed his cards on the table immediately.

"When we were last here in November, the numbers that were put forward were much too high. They need to come down -- and if they don't come down, there won't be a deal," said Cameron.

According to one well-placed diplomat, Monti questioned how far EU leaders should bow to London's demands.

"We cannot accept a deal dictated by Great Britain -- a country we can't even say with certainty will still be in the EU in 2017," the Italian said at the negotiating table.

French President Francois Hollande, meanwhile, said cuts into support for farmers and investment for growth would be his red lines.

Most of the EU's budget goes to the Common Agricultural Policy to support farmers, and to Cohesion Funds, money spent to help new members catch up economically with richer partners.